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(Reuters) - Imagine a weight-loss drug that not only helps you shed a few pounds, but does so without asking you to diet or exercise.

In an industry dogged by safety concerns, a private U.S. company is betting on a new approach to deliver just such a treatment that could end up being the first billion-dollar diet drug.

Initial trials show that Zafgen Inc, run by a former Novartis AG executive, might have an edge over its competitors, especially since its experimental drug has so far not demonstrated any major safety concerns.

Or, as one doctor and obesity patient advocate put it: "Maybe it's too good to be true."

The drug works by targeting the body, not the mind.

Unlike rival therapies that suppress appetite, Zafgen's drug, beloranib, is designed to make the body produce less fat and burn off the excess as fuel.

"This is in contrast with other agents that really only affect hunger, and don't actually restore balance of the fat," Zafgen Chief Executive Thomas Hughes told Reuters.

Even if all goes well, the drug is years away from hitting the market. But the company that develops a potent diet pill without major safety concerns could end up with a "blockbuster" — the industry term for a drug with annual sales of $1 billion.

More than a third of Americans are obese, a condition that can lead to heart disease and diabetes, and a 2012 report by lobby group Trust for America's Health said obesity cost the U.S. healthcare system up to $210 billion a year.

After their treatments won approval mid-2012, Arena Pharmaceuticals Inc and Vivus Inc have been slugging it out to conquer the weight-loss market. Sales, though, have fallen far short of expectations.

Some analysts blame marketing strategies. Others say doctors are yet to be convinced that the safety issues that led to the withdrawal of earlier diet drugs have been entirely overcome.

"A lot of the obesity drugs historically focus on working signals in a little area on the hypothalamus," said Kevin Starr, a partner at Third Rock Ventures, an investor in Zafgen.

"That is very close to the happy signals and sad signals. Suicidality and depression are all co-regulated by that same area of hypothalamus," said Starr, whose firm specializes in investing in innovative healthcare companies.

These side-effects have resulted in a number of treatments being withdrawn from the market, including the notorious "fen-phen" combination, pulled in 1997, and Sanofi's Acomplia, which went off the market in 2008.

Vivus's Qsymia and Arena's Belviq have serious side effects, ranging from depression and anxiety to heart risks and potential harm to fetuses. And while both involve signaling the brain, the exact way they work is unknown — a big concern to those worried about safety.

Danish drugmaker Novo Nordisk's liraglutide, expected to be launched in the United States by the end of 2014, has been associated with higher risks of thyroid cancer and pancreatitis.

In contrast, beloranib appeared safer in a mid-stage trial, with no serious adverse events reported. The most common side effects were nausea, vomiting and sleep disturbance.

FAT BURN

Beloranib works by blocking an enzyme known as methionine aminopeptidase 2, or MetAP2, which plays a key role in the production and use of fatty acids.

Apart from production of less fat, studies show the injectable drug also leads to a higher rate of fat burn and improves some key conditions related to heart safety, including reducing bad cholesterol and lowering inflammatory actions in the body.

"(Beloranib) sounds interesting. Maybe it's too good to be true," said Jeffry Gerber, a Littleton, Colorado physician who is a member of patient advocacy group Obesity Action Coalition.

Preliminary data from a mid-stage study testing beloranib showed the highest dose of the drug caused an average weight loss of about 22 pounds (10 kg) after 12 weeks of treatment.

In comparison, patients taking the highest dose of Vivus's Qsymia in two separate late-stage trials lost about 30 pounds and 37 pounds on average after 56 weeks of treatment.

Belviq patients, who completed 52 weeks of treatment, lost an average of about 17 pounds.

Zafgen has just completed treating patients in the study and expects to report the results in the next few months.

Gerber said for promising drugs in early stages of development, his main concern is long-term safety — which is the biggest issue that the U.S. Food and Drug Administration has with Qsymia and Belviq.

Both drugs were tested and approved to be used along with diet and exercise, while Zafgen's drug was tested in patients who continued their normal food and exercise habits.

Vivus and Arena declined to comment on Zafgen's drug or the way it works.

"It's not just about 'x' percent weight loss, it's making a change in the fundamental underlying metabolic disease, that will probably go on to reduce the cost of the healthcare system and save lives of these patients," Third Rock's Starr said.

The main challenge for Zafgen is to keep replicating the strong early results in larger studies, Piper Jaffray analyst Charles Duncan said. He estimated that it could be mid-2018 to mid-2019 before beloranib gets to market.

OVERSIZED AMBITION?

Zafgen's ambitions go beyond the diet drug race. The company wants its drug to compete with weight-loss surgery.

"Our aspiration for the drug is to provide the type of weight loss that one sees in surgical procedures — laproscopic banding, potentially even bypass — although that is a very very high hurdle," CEO Hughes said.

In clinical trials, the two FDA-approved lap-bands, made by Allergan Inc and Johnson & Johnson unit Ethicon Endo-Surgery Inc, helped patients lose between 40 percent and 65 percent of their excess weight after one year.

After three months of treatment, beloranib led to a 20-30 percent reduction in excess body weight, Hughes said.

"We are about more than halfway to reaching the levels of weight loss seen in bariatric surgery in 12 weeks," he said.

Hughes, 54, joined Zafgen in 2008 after leading the development of Novartis's successful type 2 diabetes drug vildagliptin, known as Galvus.